In the world of Internet IPOs, it doesn’t get bigger than this: Facebook, the world’s biggest social network, files for the biggest ever Internet IPO! On first glance, everything about it seems outsize: The company’s raising $5 billion! It made $3.7 billion in revenue last year! And $1 billion in net income! Even the stated mission — “to make the world more open and connected” — is impossibly expansive. It’s all so expectedly huge it’s almost bland.
Here’s the thing about the big, honking 187-page prospectus Facebook filed late Wednesday. Once you dig past those headline numbers, the company itself ends up looking pretty unremarkable — kind of like the lives portrayed in the typical Facebook timeline. You end up wondering if its best years aren’t already behind it.
Facebook’s revenue grew 69 percent in 2010. That’s down from 154 percent in 2009, but still not bad at all. It’s much better than the 29 percent growth rate Google saw last year, and close to the 68 percent growth rate for Apple. But those companies are much larger (Facebook’s 2011 revenue was less than 3 percent of Apple’s). And for Facebook, there are signs that its growth rate is already starting to slow dramatically.
In the first quarter of 2011, Facebook’s revenue grew 112 percent from the same quarter a year earlier. It also doubled in the second and third quarters. But in the fourth quarter, the growth rate slowed to 55 percent. And for advertising revenue, which makes up 85 percent of the company’s total revenue, the growth was even slower: 44 percent. Meanwhile, Facebook’s operating margin has declined over the past year, to 48 percent last quarter from 60 percent in late 2010.
What happened? One factor, according to the prospectus, is the “product changes that significantly increased the number of ads on many Facebook pages beginning in the fourth quarter of 2010.” By squeezing more ads onto its site, Facebook goosed revenue through 2011. But unless it can follow up with another plan to boost revenue, ad revenue growth could slow to 40 percent or less in 2012 — much closer to Google’s recent growth.